French Finance Minister Pierre Moscovici declared the era of austerity over after his German counterpart offered flexibility on deficit cutting, an interpretation that portends renewed bickering between Europe’s two biggest economies.
“We’re witnessing the end of the dogma of austerity” as the only tool to fight the euro debt crisis, Moscovici said yesterday on Europe 1 radio. “We’ve been pleading for a growth policy for a year. Austerity on its own impedes growth.”
The gap between the French Socialist finance chief’s view and the election-year positioning of Germany’s Wolfgang Schaeuble underscores the divergence between their economies and the wrangling that has marked the crisis fight since Francois Hollande replaced Nicolas Sarkozy as French leader a year ago.
With German Chancellor Angela Merkel campaigning for a third term in a Sept. 22 vote, policy making among Europe’s elected leaders has ground to a crawl, with European Central Bank President Mario Draghi set to take the initiative. The risk is that they’ll back off policies needed to spur competitiveness and restore growth.
“Markets should be fine with” slowing austerity “as long as governments keep focusing on structural reforms,” Joachim Fels, co-global head of economics at Morgan Stanley (MS) in London, wrote in a note yesterday. “All fingers crossed.”
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